Netflix Adds a Million Subscribers in Q4

It took Netflix four years — from 1999 to 2003 — to sign up its first million subscribers. But a continued push into streaming video online and the addition of multiple connected devices helped the subscription video rental company add a million new subscribers in the fourth quarter alone. As of the end of the latest three-month period, its total user base had risen 10 percent to stand at 12.3 million users.

And that growth looks like it will continue, as the rate at which Netflix is adding customers has also accelerated. In a statement issued along with the earnings release, CEO Reed Hasting points out that two years ago, the company’s year-over-year subscriber growth rate was 18 percent, and a year ago it was 26 percent. In the fourth quarter of 2009, that growth rate was 31 percent.

“There are two possible interpretations: the more conservative is that we are experiencing bumps due to the expansion of Netflix streaming to video game platforms, each with large installed bases,” Hastings was quoted as saying. “The more generous interpretation is that we are on the front half of a big S-curve of streaming adoption.”

Netflix’s fourth-quarter subscriber additions were driven, in part, by an increase in the number of consumer electronics devices on which the company’s streaming video platform is available. While subscribers continue to rent DVDs from Netflix, streaming has become an increasingly important part of its business. Netflix reports that nearly half — 48 percent — of its subscribers streamed a movie or TV show in the fourth quarter, compared with 41 percent in the third quarter and 28 percent who watched streaming video in the fourth quarter of 2008.

To keep that trend going, Netflix is betting heavily on adding its streaming service to more connected devices in the coming year. It added the Sony PlayStation 3 gaming console during the fourth quarter, shipping discs that enabled users to stream its films in early November. Netflix streaming on the Nintendo Wii should come online in the first quarter. And with support from even more consumer electronics manufacturers announced at the Consumer Electronics Show earlier this month, Netflix expects its streaming service to be available on more than 100 CE devices by the end of 2010.

In addition to more connected devices, the company is also adding more content, renewing and expanding deals with NBC Universal, Warner Bros., Sony, MGM, Paramount, Disney and others.

Its emphasis on streaming seems to be paying off; subscriber churn dropped below 4 percent for the first time since the first quarter of 2008, and subscriber acquisition costs, at $25.23 each, were the second-lowest level in the company’s history. Revenues were in line with analyst estimates, at $445 million, up 24 percent year-over-year. Earnings came in at $30.9 million, or 56 cents a share, compared to $22.7 million, or 38 cents a share, in the previous year’s fourth quarter.

Netflix is expecting continued strong subscriber and revenue growth in the coming quarter and full year, forecasting total subscribers of between 13.5 million and 13.8 million in the first quarter and between 15.5 million and 16.3 million subscribers for the year. The company expects first-quarter revenue to range from $490 million-$496 million and $2.05 billion-$2.11 billion for fiscal 2010.